The home sales boom means you might end up renting
After an exodus of residents during the pandemic, San Francisco is starting to see people trickle back as the economy gradually reopens, pushing rents higher for the first time since last year’s lockdowns. | Marlena Sloss/Bloomberg via Getty ImagesAmerica’s high home prices could turn us into a nation of renters. Noelle listed her house on a Thursday last August and accepted one of several offers above her asking price the following Tuesday. The 36-year-old auction house employee wanted to capitalize on the red-hot real estate market to sell her family’s home of 10 years in order to make enough money to buy her dream house. She’d planned on living in a nearby Long Island rental for six months to wait for prices to calm down and better options to come on the market. Now, Noelle thinks it could take two years, and she’s even considering buying a fixer-upper to give her family options.
“This is going to be a different summer than we expected,” Noelle told Recode. Her old house had a pool and a big backyard. Her rental has a small backyard, no pool, and is not as big as the four-bedroom colonial she had.
Noelle, who requested that we not use her last name, is one of the millions of Americans contending with the double-edged sword of a booming housing market. The sellers’ market is making those who already own homes even wealthier, while high prices push homeownership further out of reach for many Americans. In turn, the housing boom is creating a new population of home renters: people who in years past would have been able to afford a home but are now getting priced out.
While some people prefer renting a home to buying one, the home rental trend can’t be divorced from the high price of homes, which is forcing many people to rent what they can’t buy. Home prices are astronomically high, but houses are nonetheless being plucked off the market faster than ever. In March, the median single-family home in the US sold for a record $335,000 and typically spent just 18 days on the market (it took twice as long in the already hot market in March 2019, when the median price was $261,500), according to the National Association of Realtors.
Most recently, the pandemic and the premium that it put on private indoor and outdoor space has driven demand and prices. But like many things, this was an existing trend that the pandemic merely accelerated, and it has its roots in a confluence of factors, from an aging millennial population to an influx of private equity.
What’s driving up prices on houses
Some 5.6 million single-family homes sold last year — more than at any time since the housing bubble — and the prices of those homes were up 9 percent from a year before, according to the National Association of Realtors. The organization expects average housing prices to go up another 9 percent this year — another huge jump from the typical 3-5 percent annual price growth and far above the rates at which people’s income is rising.
Though not the root cause, the pandemic did accelerate those costs, as schooling and working from home made having a nice, large living space all the more important.
“It has reminded us all of the importance of home and how essential it is to have a safe space of shelter from the outside world,” Zillow Group principal economist Chris Glynn told Recode.
The pandemic also allowed subsets of Americans who remained employed — usually those who were more gainfully employed in the first place — to save money for a downpayment, as there was less for them to spend their money on.
“It’s like everybody got locked in their house and got forced to save, which is a home-builder’s dream,” John Burns, CEO of his eponymous John Burns Real Estate Consulting, told Recode.
Coupled with historically low mortgage interest rates, this past year has encouraged many Americans to try their luck buying a house.
The reasons are demographic as well. Millennials, who make up the largest living cohort, have arrived at the age where they’re forming new households and buying their first and even second homes (though that milestone happened later than in previous generations). And as millennials with growing families flock to the housing market, the supply of homes has not been enough to keep up.
Many people, including older Americans who don’t move as much as young ones or who were afraid to let people visit their homes in the pandemic, are holding onto their homes longer, meaning many existing homes — which make up the vast majority of home sales — have not been entering the market.
Additionally, new home construction, though it has ramped up lately, has been depressed since the Great Recession devastated the construction industry. High lumber prices are also delaying and driving up the cost of new housing.
Finally, investor interest in renting out single-family homes as an asset class has led them to buy up much of the housing stock that individuals once would have. Buying homes to rent means there are fewer to buy
May 4, 2021 - VOX
After an exodus of residents during the pandemic, San Francisco is starting to see people trickle back as the economy gradually reopens, pushing rents higher for the first time since last year’s lockdowns. | Marlena Sloss/Bloomberg via Getty ImagesAmerica’s high home prices could turn us into a nation of renters. Noelle listed her house on a Thursday last August and accepted one of several offers above her asking price the following Tuesday. The 36-year-old auction house employee wanted to capitalize..